ING – Poor UK retail sales highlights Brexit slowdown risks

From the FXWW Chatroom: UK retail sales have been losing momentum as the rising cost of living and Brexit uncertainty weigh on spending growth

UK retail sales for March are dreadful, falling 1.5%MoM (ex fuel) versus expectations of a 0.5% drop. We caution that this release is incredibly volatile and looking at a single month figure is almost meaningless, but the general trend is suggesting that there is a loss of momentum. Since October the monthly changes have come in as +2.2, -0.1, -2.4, -0.1, +1.6 and now -1.5%. There is similar volatility in all of the components suggesting real problems with the seasonal adjustment process when the ONS complies the report. This is perhaps understandable given the growing significance of one off factors such as Black Friday and Cyber Monday at the expense of the Christmas shopping period, whilst not forgetting that the timing of Easter always causes problems.

Nonetheless, the story for the household sector isn’t great right now. Inflation is eating into household spending power with wages once again failing to keep pace with the rising cost of living. There is also a growing sense of job insecurity highlighted in some surveys, which may also be making households a little nervous. We have to also look at where the spending has been generated and there is evidence that credit cards and running down of savings has been helping support spending since the June EU referendum. Maybe households are become more wary here too.

Overall we expect retail sales and consumer spending more broadly to soften through this year. This is likely to be highlighted in next week’s GDP report which we expect to show GDP growth slowing to 0.4%QoQ in 1Q17 versus 0.7% in 4Q16. This would also be the slowest rate of quarterly growth since 1Q 2016.

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